PPL Corp. is shedding much of its electricity generating business by merging two of its companies with similar Riverstone Holdings Inc. properties to form a new company, Talen Energy Corp., the companies announced in a news release.

The new company will continue to sell directly to consumers through the existing brand PPL EnergyPlus, a spokesman for Allentown-based PPL said today; the merger does not affect PPL Electric Utilities customers.

William H. Spence, PPL's chairman, president and chief executive officer, said the company decided on this direction following an analysis of its business mix.

"Given the challenges, uncertainties and opportunities in the wholesale power markets, maintaining the status quo was not a viable option," he says in the release issued Monday night.

PPL shareholders will own 65 percent of the new company, while Riverstone's will hold 35 percent, the release says. The deal should close in nine to 12 months once it works its way through the regulatory process, said the PPL spokesman, George Lewis.

Talen Energy will be able to generate 15,320 megawatts of power, fueled 40 percent by natural gas, 40 percent by coal and 15 percent by nuclear, the companies said. That capacity would make it the third largest independent power producer in the country, the companies said.

Billion-dollar company

PPL Energy Supply LLC and PPL EnergyPlus LLC would become part of the new company and while most jobs will transfer, some will be lost to duplication, the companies said. There will be a net loss in jobs, Lewis said.

The new company will not be affiliated with either PPL or Riverside, but it will be located in Pennsylvania, Lewis said.

"We are creating a billion-dollar company in Pennsylvania," he said.

Paul A. Farr, PPL's executive vice president and chief financial officer, will be Talen Energy's president and chief executive officer and a director of the new corporation, the companies said. Farr, as part of the transition, today will become president of PPL Energy Supply, the companies said. Vincent Sorgi, will become a senior vice president and PPL's chief financial officer, the companies said.

The spinoff, when complete, will leave PPL shareholders with the common stock in the Allentown company, plus new, prorated stock in Talen, Lewis said. The PPL stock, during the regulatory process, is expected to rise in value, Lewis said. Once the deal is complete, PPL stock will likely fall to current levels of about $34 a share, while the market will set the price of Talen stock, he said.

'Benefit to shareholder'

PPL closed Monday on the New York Stock Exchange at 34.69, up 0.47 or 1.37 percent, and continued rising in after-hours trading to 35.25. Talen will eventually trade on the New York Stock Exchange, Lewis said.

"It's a benefit to the shareholder," Lewis said of the formation of Talen. "They're getting shares in a new company" as well keeping their PPL stock.

And when PPL is divided between distribution and generation, shareholders going forward will have a "clear choice" in what sort of power companies in which to invest, Lewis said, calling PPL and Talen "two different kinds of investments."

Talen, at the start, will be a major player in power generation and, with plants in different parts of the country, less susceptible to price fluctuation due to weather, Lewis said.

Riverstone, founded in 2000, is an energy and power-focused private investment firm with offices in New York, London, Houston and Mexico City. It conducts buyout and growth capital investments in the exploration and production, midstream, oilfield services, power and renewable sectors of the energy industry.

PPL's local plants

The new company's planned 15,320-megawatt portfolio will break down to about 40 percent natural gas, 40 percent coal and 15 percent nuclear, according to the news release.

This transaction does not include the 8,100 megawatts of regulated generating capacity owned by PPL's Kentucky utilities. Those assets will continue to be owned and operated by Louisville Gas and Electric Company and Kentucky Utilities Company to serve customers in Kentucky and southwestern Virginia.

Nor does the merger include PPL's 11 hydroelectric units in Montana, which are expected to be sold to NorthWestern Energy pursuant to a September 2013 agreement.

PPL will focus on power delivery, with 2013 revenue of $7.2 billion -- or 85 percent of PPL Corp.'s 2013 earnings from ongoing operations -- in that section of the business, the companies said.

Archives editor KJ Frantz contributed to this report.

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REGULATORY PROCESS

The nine-to-12-month regulatory review includes consideration by the U.S. Nuclear Regulatory Commission because of PPL Corp.'s Susquehanna Steam Electric Station outside Berwick, Pennsylvania.

The commission, in a news release, said it will determine the "prospective new owner's technical and financial qualifications to operate the plant," including the ability to properly shut it down when its operating permit expires.